n bonds of association such as religious groups, employee association or ethnic background. However, credit union membership based on community association has weakened and a new trend has emerged based on competitive services and products rather than personal relationships. Credit unions operate in a competitive environment, characterized by slow population growth and a small population base (see Appendix B for market facts). Most of the credit unions of Ontario in the late seventies had assets and liabilities that were mismatched with respect to the term structure of interest rates. This caused spreads to shrink as interest rates rose from 1977 to 1981. Credit unions were especially hurt by the rise of interest rates: they were restricted by government regulation which stated that credit unions had to have less than 15% of their deposits in commercial loans (see Appendix C for explanation). Liquidation of a credit union was generally unpopular, as it would most likely generate a negative view of credit unions.EVALUATION OF ALTERNATIVES Option 1: Merge With PelhamStrengths1. The merger has top management support.2. Pelham’s assets and membership showed steady growth, implying that the underlying problem was it cost structure, not its ability to generate new business.3. Strengthened competitive position in terms of geographical coverage: the merger would add 3 more branches and 13 700 members to Niagara.4. Niagara has experience when it comes to mergers with other credit unions. This past experience could lessen possible transitional problems involved in combining the two credit unions.5. The ODIC would pay off Pelham’s accumulated deficit of $1.7 million. Weaknesses1. The poor financial and operational track record of Pelham is considerable (see Appendix D). 2. Niagara would have to pay $300 000 to renovate the Pelham’s Foothill branch. This is significant considering that Niagara’s 1981 net income was ...
